U.S. Economic/Financial News
Soaring Oil 'Profits' Shore Up Bankrupt Financial System
The International Monetary Fund estimates that this year, oil exporters will earn $383 billion, nearly twice the previous (inflation-adjusted) peak of $197 billion in 1980. The oil majors, according to the Wall Street Journal Oct. 4, in an article headlined, "Oil Producers Gain Global Clout from Big Windfall," are "investing" their billions in the U.S., becoming the largest American creditors, outpacing China, Japan, and all of Asia.
Economists Begin To Notice Inflation
Inflation's surface phenomenarising energy and commodity pricesare starting to worry some economists. An Oct. 3 Bloomberg wire headlined, "Inflation, Bottled Up by Fed, Threatens To Burst Its Container," quotes various economists' views on the Federal Reserve's 11 pronouncements this year that inflation is "well contained." Instead, they indicate, it is about to burst the bottle. "Rising energy costs are rapidly spilling over into the prices of everything ... and may accelerate throughout the economy," Bloomberg says. Hinting that all bets are off that the Fed would quit raising interest rates by the second quarter of 2006, the article notes that a just-released Bloomberg survey of economists found they now believe the Fed will raise the federal funds rate to 4.5% or even 5.5%. It notes that as early as Aug. 9, at the Federal Open Market Committee meeting, Fed policymakers warned that "energy price increases probably would feed through ... to the core measure of inflation."
Inflation risk is the "greatest" in the U.S., Bloomberg reports: "Crude-oil prices are up more than 40% since May. Gasoline prices have more than doubled since December 2001. Natural-gas prices have more than doubled since May. Ocean-freight charges are up more than 72% since early August. Utility rates have risen by 13% in 11 months." Bloomberg quotes a former Fed staff economist, Roger Kubarych, now at HVB America Inc., worrying, "The tremendous rise in all these costs has been steep enough and has gone on long enough that it's putting an awful lot of pressure on business costs." He pointed out that energy costs go through the economy faster now than a decade ago due to use of just-in-time inventory practices which rely on the fragile transportation system.
Meanwhile, the Cincinnati Enquirer reports that the energy price spike, hitting farmers in particular, will mean your Thanksgiving Day turkeys and Christmas trees may not be affordable.
Reliant To Raise Electricity Rates, as Gas Prices Soar
As the shockwave of speculative energy prices propagates through the physical economy, Houston's Reliant Energy says it is now paying 50% more for natural gas than it did in December 2004, and is asking the Public Utility Commission to allow it to pass on this fuel increase to customers, a PRNewswire reported Oct. 3. The 14% increase would go into effect at the end of October. Texas, Florida, and California are dependent upon natural gas for a large share of their electricity production.
Scramble to Sell Stock as Housing Market Cools
As the housing market "cools," home builders are dumping their own companies' stocks. Executives at the nation's largest home-building companies are selling their stock in their own companies, apparently getting out while the getting is still good, according to the New York Times Oct. 4. So far this year, nearly $1 billion worth of stocks in the 10 largest home-building companies has been cashed in by industry executives. Perhaps they've noticed what people trying to sell their grossly over-priced houses have noticed.
Previous "hot spots" in the bloated housing market are now seeing houses go on sale and stay unsold for months, until the price is lowered. In Manhattan, sales prices fell 13%; in Fairfax County, Va., the number of homes on the market in August rose by 50%, as people tried to off-load their white elephants; in the Boston suburb of Brookline, the inventory of homes for sale has also increased. The Times wonders whether this is a temporary "cooling off," or a more "pronounced downturn."
Mass Layoffs in New Orleans as City Runs Out of Funds
With no Federal aid forthcoming, New Orleans Mayor Ray Nagin announced Oct. 4 that 3,000 city employees had been laid off, because the city has no money to pay them. The Mayor stated that he would try to avoid reducing the number of public-safety and other essential workers. Local officials meeting in Baton Rouge with Louisiana Gov. Kathleen Blanco Oct. 3 said that they have no tax base left, with homes and businesses wiped out, and that Federal help is needed to avoid bankruptcy.